2. LITERATURE REVIEW
2.4 DISCUSSION
The following table 1 discuss the above literature review and lists 5 papers’
author, hypothesis, model, variable to be adopted and whether can data be taken from TEJ database.
Frankel et al. (1999) examines whether stock prices and trading volume increase during the time these calls take place. They study the role of conference calls as a medium of voluntary disclosure and find that companies that used this tool more frequently tended to be larger, more profitable, faster growing and more interactive with the market. In addition, they find that firms in high tech industries and with higher-than-average market-to-book ratios and sales growth rates are more likely to hold conference calls.
Dell' Acquae et al. (2010) find evidence that voluntary disclosure following the introduction of the Regulation Fair Disclosure, included in the Selective Disclosure and Insider Trading Act issued by the SEC, reduces price volatility of high tech firms listed in the US market.
Price et al. (2012) find earnings-specific dictionary is much more powerful in detecting relevant conference call tone; conference call discussion tone has highly significant explanatory power for initial reaction window abnormal returns as well as the post-earnings-announcement drift; conference call ‘question and answer’ tone matters more when firms do not pay dividends.
Johnson et al. (2004) document a positive relationship between firm level news and firm level volatility contrary to the negative relationship between idiosyncratic news and firm volatility predicted by current theories. They confirm, as conjectured in prior literature, an increase in idiosyncratic IPO volatility over the period from 1973
30
through 2003. We find the increase in volatility is over twice as large for IPOs as for firms matched to the IPOs based on size and book-to-market ratio.
Matsumoto et al. use a sample of more than 10,000 conference-call transcripts, they examine the information content of both segments of the call—the presentation and the discussion segment. They find that both segments have incremental
information content over the accompanying press release. However, discussion periods are relatively more informative than presentation periods, and this greater information content is positively associated with analyst following. They also find that managers provide increased disclosures during the presentation segment when firm performance is poor, but relatively more information is released during
discussion periods in these circumstances. Overall, their results are consistent with the notion that active analyst involvement in conference calls increases the information content of the calls, particularly when firm performance is poor.
TABLE 1. DISCUSSION OF LITERATURES
CCALL is coded one of the sample firm had a conference call in the First Call conference call database between February and November 1995, and zero otherwise. LNASSET is the log of total assets at the end of fiscal 1994. MtB is the market-to-book ratio computed as price divided by shareholders’ equity.
NANALYST is the number of analysts following the company in the January
N/A Data can be taken from TEJ database, and
calculated.
32
Author Hypothesis Model Variable to
be adopted
TEJ Database
1995 statistical period on the IIBIEIS consensus tape. ROA is the return on total assets for fiscal 1994. SGROWTH is the geometric mean of annual sales
growth between fiscal years 1991 and 1994. StdROA is the variance in annual return on assets between fiscal 1990 and 1994. DIE is the debt-to-equity ratio at the end of fiscal 1994. INTCOV is the interest coverage ratio for fiscal 1994 computed by dividing cash flow from operations by interest paid. XJ/TA is the amount of extraordinary items for fiscal 1994 divided by total fiscal 1994 assets. SpuTA is the amount of special items for fiscal 1994 divided by total fiscal 1994 assets. PUCS is an indicator variable taking a value of one if the company had a public common stock issuance transaction in the Securities Data Corporation (SDC) database, and zero otherwise. DEBT is an indicator variable taking a value of one if the company had a debt issuance transaction in the SDC
33
Author Hypothesis Model Variable to
be adopted
TEJ Database
database, and zero otherwise. OTHER is an indicator variable taking a value of one if the company had a non-common- stock and non-debt-issuance
transaction in the SDC database, and zero otherwise. The portion of the SDC database covering the period between January 1995 and May 1996 is used in this sample.
StDevt is standard deviation to measure stock volatility, CCALLTot is annual number of conference calls, OUTSH01 is outstanding shares during 2001.
ROA01 is Return on Asset Ebit (Earnings before interest and taxes) on total
StDevt
34
Author Hypothesis Model Variable to
be adopted
TEJ Database
Caselli, S. in terms of reducing the stock price volatility.
assets, Book-to-market ratio (BtoMend01), Leverage (LEV01) is computed through the ratio of net financial debt on total assets , Market capitalization (MKTCAPend01) at the end of FY 2001, calculated as the number of
outstanding shares times the stock price of the last trading session of FY 2001.
𝜎𝑎𝑛𝑛𝑢𝑎𝑙=√∑ (𝑅𝑇1 𝑗−𝑅𝑉𝑊𝑖𝑛𝑑𝑒𝑥)2 , stock volatility measure (StDev), Ta is the number of trading days in the year, Rj is the one-day firm return and RVWindex is the one-day value-weighted index return.
Earnings
conference calls and stock returns The incremental
The research expect a significant relation
𝐶𝐴𝑅𝑗 = 𝛾0,𝑖+ 𝛾1,𝑖𝑆𝑈𝑅𝑃𝑖,𝑗+ 𝛾2,𝑖𝑇𝑂𝑁𝐸𝑖,𝑗+ 𝐶𝑂𝑁𝑇𝑅𝑂𝐿𝑆𝑖,𝑗+ 𝜀𝑗
Variable definitions：
𝐶𝐴𝑅𝑗represent the cumulative abnormal return measures for conference call j defined above; 𝑇𝑂𝑁𝐸𝑖,𝑗 is interchangeable with 𝐻 − 𝑇𝑂𝑁𝐸𝑖,𝑗 , both as
H-tone Calculating the variable of H-tone should use
35 call length, firm size, book-to-market equity, profitability, leverage, trading volume, returns volatility, and analyst coverage for firm j. Unexpected earnings, SURPj, are calculated using a seasonal random walk model where the difference between the earnings per share and the earnings-per-share in the same quarter of the prior year is scaled by the stock price at the close of the lagged quarter:
𝑆𝑈𝑅𝑃𝑗 = (𝐸𝑃𝑆𝐽− 𝐸𝑃𝑆𝑗,𝑞−4)
36 firm is the one-day firm return and R Vwindex is the one-day value-weighted index return. 𝜎𝑚𝑜𝑛𝑡ℎ𝑙𝑦=√∑ (𝑅𝑇1 𝑖𝑛𝑑𝑒𝑥)2 where T is the number of days in the month and R index is the one-day return for either the value-weighted or equally weighted CRSP stock index. The variables are formed as follows. We
ROE
37
Author Hypothesis Model Variable to
be adopted
TEJ Database
continue to use the monthly measure of idiosyncratic volatility (St. Dev t) formed from daily returns as in CLMX (2001). We also cumulate daily excess returns to form a monthly return measure (Return t). The monthly market capitalization variable (Mkt. Cap t-1) uses the previous month’s market value (price times shares outstanding). We cumulate the number of days with news citations each month to form a monthly hits variable (Hits t ). Leverage is defined as the ratio of last fiscal year’s long-term debt to last fiscal year’s total assets (Lev t-1). ROE is the prior year’s net income divided by the prior year’s book value (ROE t-1). Book-to-market uses the prior year’s book value and divides by the prior month’s market value (B/M t-1).
38
Author Hypothesis Model Variable to
be adopted
TEJ Database
What Makes Conference Calls Useful? The Information Content of Managers’
Presentations and Analysts’
Discussion Sessions
2011 Matsumoto, Pronk, and
|𝐴𝐵𝑅𝐸𝑇𝑃𝑅𝐸𝑆| =β0+ β1|𝑅𝐸𝑇𝐷𝐴𝑌𝐵4| + CONTROLs +𝜀 .
|𝐴𝐵𝑅𝐸𝑇𝐷𝐼𝑆𝐶| =β0+ β1|𝑅𝐸𝑇𝐷𝐴𝑌𝐵4|+𝛽2|𝐴𝐵𝑅𝐸𝑇𝑃𝑅𝐸𝑆| + CONTROLs +𝜀
Variable definitions：
|𝐴𝐵𝑅𝐸𝑇𝑃𝑅𝐸𝑆| is the abnormal absolute returns during the presentation portion of the conference call. |𝑅𝐸𝑇𝐷𝐴𝑌𝐵4| = quote midpoint at the start of the conference call (MIDstart ) less the quote midpoint at the same time one trading day before the conference call ( MIDdayprior ) divided by MIDdayprior. |𝐴𝐵𝑅𝐸𝑇𝐷𝐼𝑆𝐶| is the abnormal absolute returns during the discussion portion of the conference call.
N/A N/A
39
Author Hypothesis Model Variable to
be adopted
TEJ Database
Roelofsen